Big miners warn of rising costs and falling commodity prices

ELEANOR HALL: Two of the world's biggest mining companies warned their shareholders today to brace for further declines in commodities prices.

The CEO's of Rio Tinto and BHP Billiton also flagged that they're looking to cut costs at their Australian mining operations.

In Sydney today, Rio Tinto is holding an investor seminar. Its rival BHP Billiton is holding its annual general meeting in Sydney.

Joining me now from that AGM is our finance reporter, Sue Lannin.

Sue, how downbeat was the BHP Billiton chief executive, Marius Kloppers as he addressed shareholders today?

SUE LANNIN: Well, actually Eleanor, he was quite upbeat considering the state of the global economy and the fact that China has slowed down. Now despite that he still said he expected long term and we are talking about the next 10 to 15 years, he was actually very positive on China and he expected big increases in demand for commodities.

Now he did point out though that the demand for commodities in China was changing. For example he said some prices like prices of iron ore would continue to go down but prices for other commodities that BHP Billiton has moved into like shale, gas and potash which is used to make fertilizers, he said that he was very confident they would go up.

So in the long term he is very confident. The big issue though for Marius Kloppers was costs. He said that miners had a rising costs and that had hit their profit, their most recent profit result and he said BHP Billiton was going to have to continue to cut costs and he in particular singled out Australia.

So let's have a listen at what he had to say.

MARIUS KLOPPERS: Over the past decade we have experienced sometimes unusually high prices in some commodities like iron ore and metallurgical coal, how did this happen? The growth in China outweighed the pace at which the industry could supply low cost supply additions.

At the same time what happened is costs escalated very rapidly in our industry and this compounded by the strengthening currencies for example the Australian dollar and Chilean peso and so on, meant that costs went up.

Together with this, we've also seen a trend where some governments have sought our royalties and this further placed pressure on the cost structures in our industry and nowhere was this more evident than in Australia.

ELEANOR HALL: That is BHP Billiton CEO, Marius Kloppers.

Sue, did Mr Kloppers face any questions about his own future?

SUE LANNIN: Well, he actually didn't say anything about that during his speech. Of course there has been a lot of speculation over his future. He has been at the head of BHP Billiton for about five years but he has not managed to push through a number of big deals such as the merger with Rio Tinto, the takeover of Potash Corporation in Canada and also there was a $3 billion write-down on the value of BHP Billiton's US gas assets.

So Mr Kloppers has had to take a cut, actually decided to forego his bonus as a result of that.

He didn't mention any of that but it was Jack Nasser, the chairman who at the end of Mr Klopper's speech Mr Nasser stood up and talked specifically about succession planning. He said it is a normal part of what any company does. It's a process not an event. It's good risk mitigation so certainly BHP Billiton trying to manage expectations there.

ELEANOR HALL: And what about Mr Klopper's counterpart at Rio Tinto? Did he echo the views about the state of the market?

SUE LANNIN: Yes, we saw very similar themes and that's because both big miners are facing the same problems - lower commodity prices and rising costs.

So Rio Tinto is having an investor day today in Sydney. They spoke to journalists earlier in the morning. I was one of the people on the call.

Now Tom Albanese, the chief executive, said that he was very confident, quite confident about China. He said that he was cautiously optimistic and he talked about green shoots of recovery in fact in China.

But he did raise the issue of costs again, he said that BHP Billiton would be cutting costs over the next two years around the world by about $7 billion. Like Marius Kloppers he did single out Australia and I asked him whether or not there would be more job cuts in Australia.

TOM ALBANESE: Sue, I just want to emphasise that it is so important that the businesses are resilient to these cycles in the volatility we have that is coming ahead of us and providing resilient businesses actually protects the largest number of jobs. So I want to emphasise that efforts to reduce costs are aligned with efforts to keep businesses in business for not only years but decades going forward.

Also, by the way, more cost efficient businesses have a greater ability to attract capital for further investment on a going forward basis. I think any business that has been in ups and downs of cycles recognises that difficult decisions need to be made and again we will treat those difficult decisions with the necessary respect both for the individual and to the communities that they may operate in.

SUE LANNIN: So are you able to actually put a number?

TOM ALBANESE: We will engage at the individual community level. We will not provide a number.